Leased Assets Koffman and Sons signed a four-year lease for a forklift on January 1, 2017....

Transcribed Image Text:

Leased Assets Koffman and Sons signed a four-year lease for a forklift on January 1, 2017. Annual lease payments of $1,491, based on an interest rate of 6%, are to be made every December 31, beginning with December 31, 2017. PV of Annuity of $1 Required: Refer to the table above for present value factors. 1. Assume that the lease is treated as an operating lease. a. Will the value of the forklift appear on Koffman's balance sheet? No b. What account will indicate that lease payments have been made? Lease expense Feedback Check My Work 2. Assume that the lease is treated as a capital lease or finance lease. a. Identify and analyze the effect when the lease is signed. Activity Accounts Investing and Financing Leased Asset Increase. Lease Obligation Increase 2. Assume that the lease is treated as a capital lease or finance lease. a. Identify and analyze the effect when the lease is signed. Activity Accounts Investing and Financing Leased Asset Increase, Lease Obligation Increase Statement(s) Balance Sheet only Feedback Check My Work How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Round answers to the nearest whole dollar. Assets = Leased Asset Balance Sheet Income Statement Stockholders' Liabilities + Equity Revenues Expenses Lease Obligation No Entry 0 No Entry Explain why the value of the leased asset is not recorded at $5,964 ($1,491 4). The leased asset should be reported at the present value of the payments which is $ not at $ Explain why the value of the leased asset is not recorded at $5,964 ($1,491 x 4). The leased asset should be reported at the present value of the payments which is $ not at $ Feedback Check My Work Partially correct b. Identify and analyze the effect of the first lease payment on December 31, 2017. Activity Operating and Financing Accounts Cash Decrease, Lease Obligation Decrease, Interest Expense Increase Statement(s) Balance Sheet and Income Statement Feedback Check My Work How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Round answers to the nearest whole dollar. Assets = Cash Feedback Check My Work Balance Sheet Income Statement Liabilities + Stockholders' Equity Revenues Expenses Lease Obligation No Entry Interest Expense c. Calculate the amount of depreciation expense for the year 2017. Round answer to the nearest whole dollar. d. At what amount would the lease obligation be presented on the balance sheet as of December 31, 2017? Round answers to the nearest whole dollar. Current liability portion Long-term liability portion Feedback TABLE 9-4 Present Value of Annuity of $1 (N) Periods 2% 3% 4% 5% 6% 7% 8% 10% 12% 15% 1 .98039 .97087 .96154 .95238 .94340 .93458 .92593 .90909 .89286 .86957 2 1.94156 1.91347 1.88609 1.85941 1.83339 1.80802 1.78326 1.73554 1.69005 1.62571 3 2.88388 2.82861 2.77509 2.72325 2.67301 2.62432 2.57710 2.48685 2.40183 2.28323 4 3.80773 3.71710 3.62990 3.54595 3.46511 3.38721 3.31213 3.16987 3.03735 2.85498 5 4.71346 4.57971 4.45182 4.32948 4.21236 4.10020 3.99271 3.79076 3.60478 3.35216 6 5.60143 5.41719 5.24214 5.07569 4.91732 4.76654 4.62288 4.35526 4.11141 3.78448 7 6.47199 6.23028 6.00205 5.78637 5.58238 5.38929 5.20637 4.86842 4.56376 4.16042 8 7.32548 7.01969 6.73274 6.46321 6.20979 5.97130 5.74664 5.33493 4.96764 4.48732 9 8.16224 7.78611 7.43533 7.10782 6.80169 6.51523 6.24689 5.75902 5.32825 4.77158 10 8.98259 8.53020 8.11090 7.72173 7.36009 7.02358 6.71008 6.14457 5.65022 5.01877 11 9.78685 9.25262 8.76048 8.30641 7.88687 7.49867 7.13896 6.49506 5.93770 5.23371 12 10.57534 9.95400 9.38507 8.86325 8.38384 7.94269 7.53608 6.81369 6.19437 5.42062 13 11.34837 10.63496 9.98565 9.39357 8.85268 8.35765 7.90378 7.10336 6.42355 5.58315 14 12.10625 11.29607 10.56312 9.89864 9.29498 8.74547 8.24424 7.36669 6.62817 5.72448 15 16 17 13.16612 12.84926 11.93794 11.11839 13.57771 12.56110 14.29187 10.37966 9.71225 9.10791 8.55948 7.60608 6.81086 5.84737 11.65230 10.83777 10.10590 9.44665 8.85137 7.82371 6.97399 5.95423 12.16567 11.27407 10.47726 9.76322 9.12164 8.02155 7.11963 6.04716 18 14.99203 13.75351 19 15.67846 14.32380 20 16.35143 14.87747 22 17.65805 15.93692 24 12.65930 11.68959 13.13394 12.08532 13.59033 12.46221 14.45112 13.16300 18.91393 16.93554 15.24696 13.79864 10.82760 10.05909 9.37189 8.20141 7.24967 6.12797 11.15812 10.33560 9.60360 8.36492 7.36578 6.19823 11.46992 10.59401 9.81815 8.51356 7.46944 6.25933 12.04158 11.06124 10.20074 8.77154 7.64465 6.35866 12.55036 11.46933 10.52876 8.98474 7.78432 6.43377 26 20.12104 17.87684 15.98277 14.37519 13.00317 11.82578 10.80998 9.16095 7.89566 6.49056 28 21.28127 18.76411 16.66306 14.89813 13.40616 12.13711 11.05108 9.30657 7.98442 6.53351 30 22.39646 19.60044 17.29203 15.37245 13.76483 12.40904 11.25778 9.42691 8.05518 6.56598 Leased Assets Koffman and Sons signed a four-year lease for a forklift on January 1, 2017. Annual lease payments of $1,491, based on an interest rate of 6%, are to be made every December 31, beginning with December 31, 2017. PV of Annuity of $1 Required: Refer to the table above for present value factors. 1. Assume that the lease is treated as an operating lease. a. Will the value of the forklift appear on Koffman's balance sheet? No b. What account will indicate that lease payments have been made? Lease expense Feedback Check My Work 2. Assume that the lease is treated as a capital lease or finance lease. a. Identify and analyze the effect when the lease is signed. Activity Accounts Investing and Financing Leased Asset Increase. Lease Obligation Increase 2. Assume that the lease is treated as a capital lease or finance lease. a. Identify and analyze the effect when the lease is signed. Activity Accounts Investing and Financing Leased Asset Increase, Lease Obligation Increase Statement(s) Balance Sheet only Feedback Check My Work How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Round answers to the nearest whole dollar. Assets = Leased Asset Balance Sheet Income Statement Stockholders' Liabilities + Equity Revenues Expenses Lease Obligation No Entry 0 No Entry Explain why the value of the leased asset is not recorded at $5,964 ($1,491 4). The leased asset should be reported at the present value of the payments which is $ not at $ Explain why the value of the leased asset is not recorded at $5,964 ($1,491 x 4). The leased asset should be reported at the present value of the payments which is $ not at $ Feedback Check My Work Partially correct b. Identify and analyze the effect of the first lease payment on December 31, 2017. Activity Operating and Financing Accounts Cash Decrease, Lease Obligation Decrease, Interest Expense Increase Statement(s) Balance Sheet and Income Statement Feedback Check My Work How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Round answers to the nearest whole dollar. Assets = Cash Feedback Check My Work Balance Sheet Income Statement Liabilities + Stockholders' Equity Revenues Expenses Lease Obligation No Entry Interest Expense c. Calculate the amount of depreciation expense for the year 2017. Round answer to the nearest whole dollar. d. At what amount would the lease obligation be presented on the balance sheet as of December 31, 2017? Round answers to the nearest whole dollar. Current liability portion Long-term liability portion Feedback TABLE 9-4 Present Value of Annuity of $1 (N) Periods 2% 3% 4% 5% 6% 7% 8% 10% 12% 15% 1 .98039 .97087 .96154 .95238 .94340 .93458 .92593 .90909 .89286 .86957 2 1.94156 1.91347 1.88609 1.85941 1.83339 1.80802 1.78326 1.73554 1.69005 1.62571 3 2.88388 2.82861 2.77509 2.72325 2.67301 2.62432 2.57710 2.48685 2.40183 2.28323 4 3.80773 3.71710 3.62990 3.54595 3.46511 3.38721 3.31213 3.16987 3.03735 2.85498 5 4.71346 4.57971 4.45182 4.32948 4.21236 4.10020 3.99271 3.79076 3.60478 3.35216 6 5.60143 5.41719 5.24214 5.07569 4.91732 4.76654 4.62288 4.35526 4.11141 3.78448 7 6.47199 6.23028 6.00205 5.78637 5.58238 5.38929 5.20637 4.86842 4.56376 4.16042 8 7.32548 7.01969 6.73274 6.46321 6.20979 5.97130 5.74664 5.33493 4.96764 4.48732 9 8.16224 7.78611 7.43533 7.10782 6.80169 6.51523 6.24689 5.75902 5.32825 4.77158 10 8.98259 8.53020 8.11090 7.72173 7.36009 7.02358 6.71008 6.14457 5.65022 5.01877 11 9.78685 9.25262 8.76048 8.30641 7.88687 7.49867 7.13896 6.49506 5.93770 5.23371 12 10.57534 9.95400 9.38507 8.86325 8.38384 7.94269 7.53608 6.81369 6.19437 5.42062 13 11.34837 10.63496 9.98565 9.39357 8.85268 8.35765 7.90378 7.10336 6.42355 5.58315 14 12.10625 11.29607 10.56312 9.89864 9.29498 8.74547 8.24424 7.36669 6.62817 5.72448 15 16 17 13.16612 12.84926 11.93794 11.11839 13.57771 12.56110 14.29187 10.37966 9.71225 9.10791 8.55948 7.60608 6.81086 5.84737 11.65230 10.83777 10.10590 9.44665 8.85137 7.82371 6.97399 5.95423 12.16567 11.27407 10.47726 9.76322 9.12164 8.02155 7.11963 6.04716 18 14.99203 13.75351 19 15.67846 14.32380 20 16.35143 14.87747 22 17.65805 15.93692 24 12.65930 11.68959 13.13394 12.08532 13.59033 12.46221 14.45112 13.16300 18.91393 16.93554 15.24696 13.79864 10.82760 10.05909 9.37189 8.20141 7.24967 6.12797 11.15812 10.33560 9.60360 8.36492 7.36578 6.19823 11.46992 10.59401 9.81815 8.51356 7.46944 6.25933 12.04158 11.06124 10.20074 8.77154 7.64465 6.35866 12.55036 11.46933 10.52876 8.98474 7.78432 6.43377 26 20.12104 17.87684 15.98277 14.37519 13.00317 11.82578 10.80998 9.16095 7.89566 6.49056 28 21.28127 18.76411 16.66306 14.89813 13.40616 12.13711 11.05108 9.30657 7.98442 6.53351 30 22.39646 19.60044 17.29203 15.37245 13.76483 12.40904 11.25778 9.42691 8.05518 6.56598